Our top-pick G5 Entertainment reported this morning Q3 2012 numbers which were a notch better than the preliminary numbers announced on October 2nd. Revenues of SEK 24,157m and EBIT of SEK 6,796m meant y-o-y growth of 100% and 104% respectively. The implied EBIT margin of 28.1% marked a sequential increase of 880bp and a 50bp improvement compared with Q3 2011.
G5 Entertainment says that it has a strong line-up of games to be released in Q4 and depending on the performance of these games, which means th that its 2012 goal of SEK 87m revenue and SEK 30m in EBIT is still within reach. This would require Q4 revenues of SEK 27m and an EBIT of SEK 13.5m, implying an EBIT margin of 50%. We believe that Q4 sales will be higher than SEK 27m, given a “normal” performance of G5’s games during the quarter. Historically Q4 sales increased by around 22-23% sequentially. Assuming that this seasonal pattern will materialize also in 2012, Q4 sales would be closer to the SEK 29m – level. Most likely, the “truth” will be somewhere in the middle, i.e. between SEK 27m and SEK 29m.
G5 Entertainment reiterates its ambition to become a company with SEK 300m annual revenue and SEK 100m in EBIT. Management aims to keep the group’s long-term average revenue growth at historic levels, which implies annual growth of around 90-100%.
Other highlights in the report include the strong cash flow generation with Q3 2012 operating cash flow reaching SEK 13.9m and cash flow adjusted for capitalized development costs reaching SEK 3.6m in the quarter. Needless to say that the financial position of G5 remains strong, with a net cash position of SEK 19.2m at the end of Q3.
Assuming 2013 revenue growth of 90% and an EBIT margin of 30%, we believe G5 Entertainment should be able to generate an EPS of SEK 5.2 in 2013. With the share currently trading at around SEK 42, the 12-months forward PE-multiple is around 8x. G5 Entertainment continues to deliver and continues to be a bargain.